Energy Prices and Electric Vehicle Adoption

Speaker: Associate Professor Erich Muehlegger
Affiliation: University of Calinfornia, Davis
Location: Online via Zoom
Zoom link: https://uqz.zoom.us/j/82603079317

Abstract

An extensive literature examines the responses of car buyers to gasoline prices. But almost nothing has been written on the effect of electricity prices on electric vehicle (EV) demand despite the centrality of EVs to climate policy. This paper provides the first direct revealed preference evidence on how EV sales respond to electricity and gasoline prices. Using the universe of EV registrations in California over 2014 - 2017, we use a border-discontinuity strategy that exploits sharp changes in residential electricity prices between utilities. EV sales are six times more sensitive to gasoline prices than to electricity prices. Furthermore, we find that electricity prices affect vehicle retention. The likelihood of resale increases with local electricity prices, suggesting that owners learn by experience about operational costs. Our results have important implications for optimal subsidy and tax policy on both the intensive and extensive margins. If consumers under-estimate the cost of ownership of EVs, optimal purchase incentives would combine a subsidy to address externality reduction benefits with a counter-vailing tax to address consumer mis-optimization stemming from the undervaluation of future electricity costs.